Financial Fraud Against The Corporation

1. The three aspects of fraud - Perceived pressure, Rationalization, and Opportunity were present in the CIT case as follows:

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

Committing fraud requires motivation from perceived pressures like greed or meeting expectations. With the shift in investor focus and the need to meet analyst expectations, Scrushy and the “family” manipulated earnings to make HealthSouth appear more successful. Perceived opportunity establishes how an individual’s position enables fraud to be committed and

Employee fraud often takes place when pressure (motivation), opportunity and rationalism are present. In fact, employee perception where failure to meet sales target might leave them unemployed and unable to settle bills for their family (Kelly, 2016). Furthermore, watching other co-worker committing fraud will most likely influence the employee to do the same because their mindset tends to persuade themselves that it is one of a way to meet their quota plus “everyone is doing it.”

In most of the cases, family members of the owner's company still money from the company or send private information to other companies. The reasons why these people commit fraud to their own family is because they are ambitious and they want all for themselves. Unfortunately, the ambition of this people not only harm the owner of the company, but also the employees of the company. Since these persons don't want to pay for what they did, they blame an innocent person. When the owners of the companies found that someone is committing a fraud in their company they open an investigation to find the responsible. However, the responsibility of the fraud falls to an innocent person. Because the persons that commit the fraud is an intelligent person and somehow finds the way to blame others and wash their hands.

According to Langton & Piquero (2007), there has been much debate on the definition of white-collar crime and also the types of crime that should be labeled “white-collar.” Although some scholars have argued that crime should be committed by someone in high power, others have also argued that crime must be committed by the person during the course of that person’s occupation. Most recently, “white-collar crime” has been defined as any financial offenses committed through the use of some combinations of fraud, dishonesty, or conspiracy. According to Sutherland (1940), white-collar criminality is expressed in all corporations. In business, it is more frequent in the form of manipulation such as stock exchange, misrepresentation in financial

When looking at whether or not white collar criminals usually operate as one man army or collude with other individuals to commit fraud. In recent statistics the number is two-thirds of all fraud is committed by a lone perpetrator. However, the one third of cases that involved a form of collusion of white collar criminals of at least two or more parties led to four times higher median loss for the victim organization. Collusion allows for management and executives to work together to better circumvent internal controls that allow for a bigger schemes to go unnoticed. A fraudster working alone will not be able to get around as many controls without being detected by another employee. Another general trait is the correlation of education and

“The first leg of the fraud triangle represents pressure. This is what motivates the crime in the first place. The individual

Financial statement fraud is usually a means to an end rather than an end in itself. When people "cook the books" they may doing it to "buy more time" to quietly fix business problems that prevent their entities from achieving its expected earnings or complying with loan covenants (Fraud Magazine, 2014. It may also be done to obtain or renew financing that would not be granted or would be smaller if honest financial statements were provided. People intent on profiting from crime may commit financial statement fraud to obtain loans they can then siphon off for personal gain or to inflate the price of the company 's shares, allowing them to sell their holdings or exercise stock options at a profit (Fraud Magazine, 2014). However, in many past cases of financial statement fraud, the perpetrators have gained little or nothing personally in financial terms. Instead the focus appears to have been preserving their status as leaders of the entity - a status that might have been lost

In this study, there are two samples be collected from MBA student (85 people) and financial professionals (77 people). MBA students are graduate students who have been shown to be reliable proxies for professionals in a number of studies on ethics and in other studies testing attitudes about fraud. While, all of the professionals were currently serving in an executive or supervisory capacity in an accounting or financial related field and 40 were serving in a Controller, CFO, or CEO capacity. Nonetheless Controllers, CFOs and CEOs are the primary force behind financial manipulation and earnings management.

There are three theories of crime causations: (1) the strain theory, (2) the control theory, and (3) the social learning theory. However, there are also biological causation of crimes which are further broken down into psychological, economic, and political theories. Understanding the sociological causes of why fraud is committed helps fraud investigators identify perpetrators and the crime. Sociological theories enable fraud investigators to learn how a white-collar criminal’s social environment impacts his or her desire to commit a crime. Each theory focuses on the common social environments like family, workplace, and community, but they are also very different. They each

This enables them justify the crime to themselves in a way that makes it acceptable or justifiable. LITERATURE REVIEW Why people commit fraud was first examined by Donald Cressey, a criminologist, in 1950. His research was about what drives people to violate trust. He interviewed 250 criminals over a period of 5 months whose behaviour met two criteria: (1) the person must have accepted a position of trust in good faith, and (2) he must have violated the trust.

Cheats, bribery, scam, swindle and lies are always part of the business environment. These acts of dishonesty and deception are lurking in the business world for their prey. As Smith proposed, “Deception would appear to be the norm rather than the exception in business” (Smith 19). Although deception is common in the corporate world, there are always outbursts of trauma and disturbance every time the business history observes the occurrence of major fraud, failures and other illegal acts. Enron Corporation, dubbed the most innovative company in corporate America from years 1999 to 2005 by Fortune, was not spared from the epidemic of dishonesty. The question is: what causes or influences people and society to commit and indulge in such deeds of wickedness and bitterness in the corporate world? Are they motivated by greed, temptation, lust, pleasure, financial gain, survival or just sheer joy of entertainment? For those who were caught in the act and brought to justice and put behind bars, were their actions and deeds of dishonesty justifiable in the eyes of the public? If no, were their punishment and jail time sentenced or meted out by the judicial system reasonable or warrantable according to the crime committed? There are many crucial factors and forces at work which we need to consider and ponder circumspectly as major disparagement like Enron was much more complicated than it may seem on surface. There were many grey areas and not so straight forward as black and white.

Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.